Senate Committee Hansard

COMMONWEALTH OF AUSTRALIA

Official Committee Hansard

SENATE
STANDING COMMITTEE ON RURAL AND REGIONAL AFFAIRS
AND TRANSPORT

Reference: Wheat Export Marketing Bill 2008 and Wheat Export Marketing (Re-
peal and Consequential Amendments) Bill 2008 [Exposure drafts]

THURSDAY, 27 MARCH 2008
CANBERRA

BY AUTHORITY OF THE SENATE

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SENATE STANDING COMMITTEE ON
RURAL AND REGIONAL AFFAIRS AND TRANSPORT
Thursday, 27 March 2008

Members: Senator Sterle (Chair), Senator Siewert (Deputy Chair), Senators Heffernan, Hur-
ley, Hutchins, McGauran, Nash and O’Brien
Participating members: Senators Abetz, Adams, Allison, Barnett, Bernardi, Birmingham,
Bishop, Boswell, Boyce, Brandis, Bob Brown, Carol Brown, Bushby, Campbell, Chapman,
Colbeck, Coonan, Cormann, Crossin, Eggleston, Ellison, Fielding, Fierravanti-Wells, Fifield,
Fisher, Forshaw, Hogg, Humphries, Johnston, Joyce, Kemp, Kirk, Lightfoot, Lundy, Ian Mac-
donald, Sandy Macdonald, McEwen, McLucas, Marshall, Mason, Milne, Minchin, Moore,
Nettle, Parry, Patterson, Payne, Polley, Ray, Ronaldson, Scullion, Stephens, Troeth, Trood,
Watson, Webber and Wortley
Senators in attendance: Senators Adams, Fisher, Heffernan, Hurley, Hutchins, McGauran,
Nash, O’Brien, Siewert and Sterle
Terms of reference for the inquiry:
To inquire into and report on:
Wheat Export Marketing Bill 2008 and Wheat Export Marketing (Repeal and Consequential
Amendments) Bill 2008 [Exposure drafts]

WITNESSES
BARTOS, Mr Stephen Anthony, Director, Allen Consulting Group.................................. 1
CROSBY, Mr John Roger, Chairman, Wheat Industry Expert Group........................... 17
DRUM, Mr Patrick, Brocklesby Growers Group............................................................... 48
GOLLASCH, Mr Philip, Brocklesby Growers Group ....................................................... 48
GREBE, Mr Sasha, Trade Advocacy and Government Relations Manager, AWB Ltd ... 1
GURSANSKY, Dr Benjamin Charles Gordon, Consultant, Grains Council of
Australia ................................................................................................................................. 64
HADLER, Mr Robert James, General Manager, Corporate Affairs, AWB Ltd............... 1
McDONNELL, Mr James William, Brocklesby Growers Group ..................................... 48
MORTIMER, Mr David Kenneth, Executive Manager, Food and Agriculture
Division, Department of Agriculture, Fisheries and Forestry ........................................... 17
OSBORNE, Mr Alick Stevenson, Director, Australian Grain Exporters Association .... 57
PHILLIPS, Mr Russell, General Manager, Wheat, Sugar and Crops Branch,
Department of Agriculture, Fisheries and Forestry ........................................................... 17
SHEALES, Dr Terence Charles, Chief Commodity Analyst and Manager,
Agriculture Branch, Australian Bureau of Agricultural and Resource Economics,
Department of Agriculture, Fisheries and Forestry ........................................................... 17
SMITH, Mr Jamie Lachlan, Board Director, Policy Council, Grains Council of
Australia ................................................................................................................................. 64

Thursday, 27 March 2008 Senate RRA&T 1

Committee met at 9.00 am
BARTOS, Mr Stephen Anthony, Director, Allen Consulting Group
GREBE, Mr Sasha, Trade Advocacy and Government Relations Manager, AWB Ltd
HADLER, Mr Robert James, General Manager, Corporate Affairs, AWB Ltd
CHAIR (Senator Sterle)—I declare open this public hearing of the Senate Standing
Committee on Rural and Regional Affairs and Transport. The committee is hearing evidence
on its inquiry into the Wheat Export Marketing Bill 2008 and a related bill. I welcome you all
here today. This is a public hearing, and a Hansard transcript of the proceedings is being
made. Before the committee starts taking evidence, I remind all witnesses that in giving
evidence to the committee they are protected by parliamentary privilege. It is unlawful for
anyone to threaten or disadvantage a witness on account of evidence given to a committee,
and such action may be treated by the Senate as a contempt. It is also a contempt to give false
or misleading evidence to a committee.
The committee prefers all evidence to be given in public but, under the Senate’s
resolutions, witnesses have the right to request to be heard in private session. It is important
that witnesses give the committee notice if they intend to ask to give evidence in camera. If a
witness objects to answering a question, the witness should state the ground upon which the
objection is taken, and the committee will determine whether it will insist on an answer,
having regard to the ground which is claimed. If the committee determines to insist on an
answer, a witness may request that the answer be given in camera. Such a request may, of
course, also be made at any other time.
I remind people in the hearing room to ensure that their mobile phones are either turned off
or switched to silent mode. Finally, on behalf of the committee, I would like to thank all of
those who have made submissions and sent representatives here today for their cooperation in
this inquiry. I welcome representatives from AWB and the Allen Consulting Group. I invite
you to make a brief opening statement and then the committee will ask questions.
Mr Hadler—We would like to thank the Senate committee for the opportunity to be here
today. We did lodge a formal submission with the secretariat last night—you may not have
seen that yet, but copies will be circulated. We will refer to some of that material today and
we would be pleased to go into more detail on that in due course. Sasha Grebe and I are part
of a new management team at AWB that has been there for less than 18 months. Our charter
has been to rebuild the company following the oil for food program issues. Therefore, we are
not closely aligned with what happened in the past and our focus is very strongly on making
sure we have a good company going into the future. Mr Bartos is a consultant who has been
commissioned by AWB to write two independent reports that are attached to our submission,
one on fair access to storage and handling infrastructure in the grains industry and the other
on an orderly transition of industry good services under the government’s proposed new
wheat marketing arrangements.
AWB has publicly welcomed the early release of the draft bill. We think this is a good way
of providing clarity about what the government is proposing and giving confidence to the
grains industry about the process that we are going to go through over the next six months.
The reality is that Australia’s wheat export marketing arrangements have fundamentally


RRA&T 2 Senate Thursday, 27 March 2008

changed over the last 18 months and there is no longer a single desk in place. We have a
hybrid set of arrangements, with a national pool that accommodates about 60 per cent of
Australian wheat exports; there are bulk export permits that are given to a range of other
exporters; and wheat exporting in bags and containers is deregulated. Therefore, there is
effectively no single desk in place now. I think that is an important point to understand.
The accreditation scheme that is being proposed by the federal government we believe
provides a good model to move forward. It is an evolution of the current arrangements. The
South Australian accreditation scheme, which is what the federal model is built on, I think
provides a very good example, a benchmark, of light-touch regulation of wheat export
marketing. It fulfils all the good public policy principles of simplicity, transparency, neutrality
and low cost. It was implemented in July and was fully running before the harvest last year. It
was a very smooth implementation, and I think if we could achieve the same outcome with
the federal legislation that would be a good outcome for the grains industry and for wheat
growers.
If the accreditation scheme is not implemented, the reality is we will be left in a twilight
zone of the arrangements I talked about before, where AWB will be required under legislation
and its constitution to run a national pool but it will not have volume certainty because it will
not have the bulk veto. There will be bulk permits, and wheat exports in bags and containers
will be deregulated. That will be an extremely difficult operating environment for all players
in the grains industry, so the default situation of not passing this legislation is not good.
We have had an opportunity to examine the draft bill in some detail and we have provided
an attachment to our submission which identifies approximately 10 issues which we think are
unintended consequences or potential compliance costs which this committee has the
opportunity to fix before they become enacted in legislation. Briefly, and we can go back into
these in more detail if the committee desires, the legislation provides very broad powers to the
regulator to develop and implement regulations on the back of this legislation. On the basis of
briefings by the regulator last week, there is a risk that we could eventually have a wheat
industry ASIC and an attestation process that is very similar to the Sarbanes-Oxley process for
banks in the US. I think we need to guard against that. It would not be consistent with the
intent of the legislation and it would not be consistent with the South Australian benchmark of
a light touch regulatory approach.
The legislation also proposes some potential breaches based on phytosanitary measures.
We need to be quite clear about whether that is foreign laws that we need to be careful about
or laws set by AQIS. Potentially we are handing power over to foreign governments to
influence how Australia’s wheat export legislation is enacted.
We believe there is a need for greater detail in the legislation about the terms and
conditions of fair access to bulk storage and handling infrastructure. There is a focus on price
in the legislation. There also needs to be an emphasis on non-price conditions, because that is
in effect where anticompetitive behaviour can be quite explicit. We also think that the
legislation is a bit narrow in focusing just on port facilities. The reality is that the bulk
handlers operate very integrated storage and handling processes with up-country silos and
port facilities providing an integrated storage and handling system. They can influence
competition up-country as well as at port.



Under the legislation, there are provisions for any person to appeal a decision. That is a
dangerous precedent. I think, in principle, the legislation should limit the ability to appeal to
applicants who are refused accreditation. If anyone—including competitors—is able to
appeal, you could be placed in a very difficult position.
The term ‘export’ is not actually defined in the legislation. That could create a legal
minefield with a regulator about whether it is actually a sales agreement or whether it is wheat
on board a ship. So there are some details there that need to be worked out.
The only other material issue at this stage, I think, is that there are unreasonably onerous
reporting obligations. Under the draft regulations, companies would have to report to Wheat
Exports Australia within 14 days of any possible breach that could revoke their accreditation.
I think it is too broad a requirement. It needs to be referred back to the specifics of the
legislation on the accreditation criteria and I think the time period also needs to be lengthened.
They are some of the unintended consequences and compliance issues that we have
identified in our brief analysis.
We have attached to our submission the Allen Consulting Group report on bulk handling. I
think there are a lot of misconceptions in the grains industry and amongst regulators about the
actual state of affairs; this report provides a very good analysis of the current situation.
Basically, the three bulk-handling companies in Australia have natural regional monopolies.
Without the countervailing pressure of the single desk, they will be able to leverage that
monopoly power. To give you some idea of the magnitude of their power, over 600 up-
country silos and nine ports are owned and controlled by those three bulk-handling
companies. AWB has 22 up-country silos and half-ownership of one port in Melbourne. That
gives you some idea of the potential mismatch between the bulk-handling companies, with
their entrenched power, and other traders—not just AWB but also other traders—who do not
have access to storage and handling facilities and ports. So I think the fair access provisions
proposed in the bill are essential.
Finally, the second paper by the Allen Consulting Group provides some suggestions for an
orderly transition of industry good services. Under the old arrangements, AWB provided a
range of services that were largely funded out of grower money, out of the pool, and they
included things such as wheat classification, industry information, delivery standards and
strategy development for the industry. The paper that the Allen Consulting Group prepared
adopts a very hard-nosed economic analysis of where there is market failure in the delivery of
those services if they were not provided by AWB, and it concludes that there are probably
only three areas where there is potential market failure where other existing players in the
grains industry could manage those services.
Wheat classification is one of those areas, and we have been in discussions with the
GRDC, the Grains Research and Development Corporation, about taking over those services
as part of an orderly transition. The second area is delivery standards of wheat at silo.
NACMA, which is an industry association, has started work on industry generic delivery
standards, and we think that is probably the right organisation—with appropriate input from
grain growers themselves—to develop that sort of information. Lastly, there is a gap in the
provision of information about stocks and trade in wheat. We believe that the ABS and Wheat



Exports Australia as it is proposed, in combination, would be able to fill that information gap.
The ABS has the constitutional powers to collect the information. It would require additional
budget funds to do that, but I think that there is a clear-cut case of market failure where the
government could provide appropriate support to the industry.
CHAIR—Mr Bartos, do you wish to add any comment?
Mr Bartos—No. I am very happy to simply respond.
CHAIR—Thank you.
Senator HEFFERNAN—Do you think that under the new legislation Australia’s wheat
growers will be better off than they were under the old?
Mr Hadler—There are potential benefits for wheat growers under the new arrangements.
In theory, that derives from two drivers. By providing greater choice to wheat growers on who
markets their wheat, potentially you will see innovation and competition in the marketing of
wheat. The second area where, in theory, there might be improved benefits from competition
in storage and handling is in driving down the costs of storage and handling. As I said, that is
in theory. Particularly in the area of storage and handling costs, it would depend on fair
access.
Senator HEFFERNAN—Is that based on extending the port arrangements to the point of
delivery?
Mr Hadler—Correct.
Senator HEFFERNAN—Do you think there is a greater risk of regional monopoly rather
than collusion at the point of delivery?
Mr Hadler—Yes, I do. There are natural regional monopolies. CBH in WA basically
controls the storage and handling infrastructure there. It is a long way from there to the
domestic market on the east coast and they effectively have a natural regional monopoly. On
the southern coast of Australia, ABB in South Australia has an established regional monopoly,
and GrainCorp on the east coast has an established regional monopoly.
Senator HEFFERNAN—So your report from Mr Bartos addresses those issues.
Mr Hadler—It does.
Senator HEFFERNAN—This is a fairly emotional debate for a lot of people. Apparently
there was a fair bit of emotion here yesterday. Do you think that the buyer of last resort is a
thing that is fixed in people’s minds? I actually think that the buyer of last resort had some
upsides and some downsides. The serious downside was that AWB Ltd, as you know, could
cash-accumulate and then dump it into the pool to get rid of it, which they did. I promised
Sasha I would not go through the Geneva desk rubbish today.
Senator ADAMS—Not like you did yesterday.
Senator HEFFERNAN—That was only a bit of a tickle-up yesterday. There is no decent
explanation for some of that, I can tell you. Do you think there is any legitimacy to the buyer
of last resort?



Mr Hadler—I think it is a bit of a red herring, to be honest. The reality is that there is no
buyer of last resort. Under the current legislation and the arrangements managed by AWB, if
wheat does not meet delivery standards we do not have to accept it. That wheat is then usually
discounted into the domestic market or other markets as feed wheat at a lower price or it
cannot be sold, because it does not meet anyone’s quality standards.
Senator SIEWERT—Who normally does that? Who does the discounting and how does
that happen?
Senator HEFFERNAN—The market.
Mr Hadler—The domestic market is deregulated, so it just happens through other traders
and customers.
Senator SIEWERT—What we heard yesterday was that we have had the single desk, it
has been the buyer of last resort and that if wheat is shot or sprung we have always been able
to put it in the pool. So what you are saying is that, no, that has not happened; it goes into the
domestic pool.
Senator HEFFERNAN—That is not quite an accurate interpretation of how it really
works at the bridge. For shot and sprung wheat, sure, there will be grade set up through the
accumulators, whether it is GrainCorp, AWB or whoever under the present arrangements. But
generally the better buyer is the local domestic buyer.
Senator SIEWERT—That is what I am trying to work out. We have to get to the bottom
of this. Are they actually the buyer of last resort? What has happened in real life, as opposed
to what people wish would happen?
Mr Hadler—I think what happens in real life is that wheat growers have their cake and eat
it too. What I mean by that is that they try and get a higher price on the domestic market,
particularly pre-Christmas, when wheat prices spike because of the lack of supply, and then
they try to stick some of it into the pool to hedge their bets. That is how it works in practice.
Senator SIEWERT—And that has been accepted?
Senator ADAMS—In the eastern states.
Mr Hadler—In the eastern states, yes.
Senator HEFFERNAN—Where there is a domestic market, yes.
Mr Hadler—There is not as big a domestic market in the west.
Senator HEFFERNAN—But obviously, under the present arrangements, financial
instruments have a big place, and a lot of people get burnt by experience that they could do
without in that process. Under the buyer of last resort system, I thought it was a curious
security blanket for the industry if they understood that you, AWB—and I am still hopeful
that some of your AWB blokes are going to go to jail—
Senator McGAURAN—I raise a point of order on that last comment.
Senator HEFFERNAN—What? That is what I think.
Senator McGAURAN—Well, it is out of order.
Senator HEFFERNAN—I do not think it is out of order.



Senator McGAURAN—It is a slur on those at the table.
Senator HEFFERNAN—No, it is not. This is the new brigade here.
Senator McGAURAN—Whatever the reference was, I take it as such, and I appeal to the
chair.
Senator HEFFERNAN—Don’t be a sook!
Senator McGAURAN—I appeal to the chair.
CHAIR—Senators, I must admit that I was talking to another committee member, and I
missed that.
Senator HEFFERNAN—This is the new brigade here.
CHAIR—Senator Heffernan, carry on.
Senator McGAURAN—Don’t tell me what my point of order is!
Senator HEFFERNAN—Don’t be a sook! Under the buyer of last resort arrangements, it
is a fact that AWB Ltd, as opposed to the pool, could buy wheat in the cash market and then,
if they needed to, they could sell it to the buyer of last resort—that is, back to the growers.
That is a fact, isn’t it?
Mr Hadler—That is a fact.
Senator HEFFERNAN—And then, of course, if it suited AWB Ltd they could buy grain
from the pool, which they did to the tune of whatever it was—2.9 million tonnes—and sell it
through the Geneva desk.
Mr Hadler—That is technically correct, but the motive in that is to maximise returns to
growers under the legislation and the constitution.
Senator HEFFERNAN—I hear all that, but I do not see the truth of that, I have to say. As
you know, the Wheat Export Authority are a bunch of pansies and could not provide any
supervision of that. Obviously, in this last harvest, AWB closed the pool off before the
southern harvest had commenced. We had talked about this before. Why was that?
Mr Hadler—I am not sure that is quite correct. What happened was that AWB, because of
the changed regulatory arrangements with bulk permits and deregulation of bags and
containers, announced prior to harvest that it would not have any guaranteed access dates. In
past years, AWB has published a date when the pool delivery would close in each port zone.
The way the wheat harvest works is that, because of climatic conditions and the way the
seasonal conditions work, the wheat harvest usually starts in Queensland, sometimes as early
as late July to mid August. It goes down and around the country, and usually the last places to
complete harvest are in south-west WA, around Albany. While we said that we would not give
anyone the clarity of having a published access date—because we did not want to give
competitors a free ride of dumping into the pool, as Senator Heffernan has talked about—we
gave a commitment that we would not close the pool until harvest had finished in each port
zone. So what we did was to progressively close the pool in each port zone as harvest was
largely or fully completed. That gave all wheat growers an opportunity to deliver to the pool.



Senator HEFFERNAN—Can I just say that in practice—by the way, I have to declare an
interest—
Senator McGAURAN—This is not relevant.
Senator HEFFERNAN—It is very relevant; you would not know, Senator McGauran,
because you do not grow wheat. But at the bridge at Junee, when that happened, the price of
wheat dropped $30 a tonne overnight. That is what worries me. I am confident that, if we
think through this legislation, Australia’s wheat growers could be better off as long as we
provide things like the port to the point of delivery and we somehow monitor collusion. You
say, Mr Hadler, that anyone can appeal. Who can they appeal to?
Mr Hadler—The companies act and the Trade Practices Act, I think, provide sufficient
protection for wheat growers from market power, but the grains industry itself could—
Senator HEFFERNAN—I would have to say—thinking of the Woolies and Coles thing—
that I am not too sure about that. Bear in mind that the courts and the law system are not about
the truth; they are about the law. The more you extend the law, the more you delay the
process.
CHAIR—Senator Heffernan, you are probably wasting your valuable time.
Mr Hadler—Just to finish that comment, Senator Heffernan, I think that the grains
industry and the legislation, in combination, could provide sufficient grower protection. What
do I mean by that? I think NACMA, as an industry group, is looking at standard industry
contracts, and that could be a good way, through a voluntary code of practice, of providing
industry support for greater transparency on estimated silo returns and how growers are
treated at silo.
Senator HEFFERNAN—Under the present arrangements where 20 per cent of the
growers grow 80 per cent of the wheat—it is probably higher now—some of those growers
actually want to get into the export thing themselves. Would it be fair to say that one of the
great dangers to the wider wheat industry in Australia would be the management of the
quality of that farm storage? Already in New South Wales—I will not name the storage
facility—there is a huge weevil outbreak in one facility of the majors. Would you see some
dangers in supervising farm delivered exported wheat? There could be anything from weevils
to God knows what.
Mr Hadler—There are clearly some risks, but I think the reality is that the market provides
a very good protection of quality. At the end of the day customers will send a clear price
signal to those people who cannot deliver a quality product. That will provide a blowtorch to
wheat marketers to ensure they manage the storage and handling system a lot better than they
have in the past. As you are aware, the current storage and handling system is a black box.
There is no transparency about it, there are no rules.
Senator HEFFERNAN—It is called commercial-in-confidence.
Mr Hadler—The more that we expose those current arrangements to greater transparency
and greater market pressure the better the outcomes for wheat growers.
Senator HEFFERNAN—This is my final question: in your submission—and I have not
read it if it was delivered overnight—have you made some recommendations to instruct both



this committee and the government on betterment of the legislation to give a brighter future to
Australia’s wheat growers?
Mr Hadler—Yes, we have.
Senator HURLEY—You mentioned briefly the ABS providing more information. I want
to follow up on that. I have been told that in the US, because of a previous marketing disaster,
information is published about crop sizes and wheat sales. Is that something you envisage
seeing happening here? There has been some discussion that people will not disclose that
information because it is commercial-in-confidence.
Mr Hadler—There are some gaps in the provision of industry data at the moment, notably
around stocks. The ABS has tried to publish information about stocks but it is not very
comprehensive. It is a national database. To be more relevant to the grains industry it needs to
be broken down into port zone, because that is where all the action will happen under an
accreditation system. The information that will be important to the market, which will be in
part commercial-in-confidence but can be protected when it is aggregated up through the
ABS, is information about where the stocks are in the storage and handling system and some
of the shipping stem information around where the trade flows are going, and how much and
who to. That will provide significant transparency improvements on what is there at the
moment.
Mr Grebe—On that, one of the things that we need to bear in mind here is a principle that
you want timely information. It is not so much the collating. A lot of what is collected in the
US is probably too detailed. What we are looking for here is clear signals to the market. We
want the information provided in a timely manner so people have access to it and it is useful
in a commercial way.
Senator HURLEY—Will this be essential for good marketing operations?
Mr Hadler—Yes, we would see continued information flow as an industry good service. It
would naturally be provided in this instance by the ABS because of the market failure aspects
of that information.
Senator HURLEY—So AWB would not have any problem with disclosing what stocks it
held and where its markets were?
Mr Hadler—No, we would be committed to providing it on a commercial-in-confidence
basis to the ABS, and they would aggregate it up so that it would be industry information.
AWB, as part of the current arrangements, has probably had the most onerous and explicit
reporting requirements of any company in the grains industry. For us it is not a big leap of
faith to go to a new system, as has been proposed.
Senator HURLEY—I have a question about the kinds of safeguards that are around about
company information and the WEA having the ability to look at company records. You were
saying that that may well be too onerous and that the WEA does not need to know that degree
of detail. Could you expand on that a bit more?
Mr Hadler—The legislation basically gives carte blanche to the current Export Wheat
Commission to determine all the regulations for how the system will work in practice around
accreditation and revocation of accreditation. In briefings last week, members of the Export



Wheat Commission outlined a range of proposals which would require significant compliance
costs by a company up front to prove accreditation as a fit and proper person and ongoing
compliance requirements in providing information to the new Wheat Exports Australia, as its
successor, to prevent a breach and a revocation of accreditation. The proposals are
significantly more detailed and onerous than the processes under the light touch regulatory
model in South Australia. I think that this committee needs to have a look at the difference
between the South Australian model and the potential model that could be put in place by the
Export Wheat Commission under the new accreditation legislation. Some of the detail we
provide in our submission outlines some of the potential risks and costs associated with that.
Senator O’BRIEN—Can you identify the parts of the bill rather than the regulatory model
which is proposed to devolve from the bill that you say leads to that, or alternatively are you
saying that that is the interpretation of the bill by the officers?
Mr Hadler—It is the interpretation of the bill in subsequent regulation. I think the intent of
the bill is quite light touch but there is the potential for that to be unwound through regulatory
development.
Senator ADAMS—A number of those companies that are already accredited in South
Australia will be the same companies that will be applying for a market.
Mr Hadler—That is correct. There are now 10 accredited exporters under the South
Australian barley accreditation scheme. That has been implemented very smoothly and
without incident.
Senator NASH—How do you think pools are going to operate in the new environment?
Mr Hadler—I think there will be innovation, and I think there will be more pools—they
could be regional pools or product pools. The cash market will play a bigger role. It is yet to
be seen how the competitive forces will play out but I suspect there will be innovation and
some of the complexities and costs built into the current system will disappear.
Senator NASH—I note that you said earlier that we will not have volume certainty with
pools. One of the things that AWB said over the years is how important it is that they knew
what the stocks were so they could run the pools appropriately. I gather from what you are
saying that innovation will mean a different way of doing things, given that in a lot of
instances there will not be that volume certainty for traders.
Mr Hadler—That is correct. The reality is that under the old single desk arrangements
AWB built a Mercedes model of national pooling. It was a very high cost model and it had all
the bells and whistles. Quite frankly, that was unsustainable, and growers started to complain
about the cost of it, particularly in drought years, which we have had in the last two years, and
we had to significantly cut back on the cost. The only way that you can manage that high-cost
model is with volume certainty. In an accreditation system where there is competition you will
skinny down and you will end up with a Holden model of pooling. It will do the job that
wheat growers need.
Senator NASH—I think there are a lot of growers out there who would prefer the Merc!
You were talking about the ABS statistics around the information on stocks, I think. Given
that there is going to be potentially such a large amount of on-farm storage, how will there be



any certainty that the statistics the ABS come up with are actually correct when that will have
to be taken into account as well?
Mr Hadler—I am not underestimating the transitional issues, and I think we will need to
look closely at how the government and the industry manage that issue. There is no doubt that
on-farm storage is becoming a much bigger part of the market, particularly on the east coast,
where domestic industry play a much bigger role as direct customers with wheat growers. So I
think we will need to work through that, but I do not see that as a material impediment to this
legislation.
Mr Grebe—Just on that, I think one of the areas that we are pushing about that disclosure
and that knowledge of information is less from a recording or a data analysis perspective but
more about ensuring that everybody has access to the same information. In terms of what the
ABS will be looking at: for example, currently the bulk-handling companies will know what
you have delivered into the system, what I have delivered and what every individual has put
in. In the past, they have been unable to commercialise that. Moving forward, if they should
gain accreditation, they will have access to that consolidated knowledge in a way that
individuals do not. So what we have identified and what the Allen Consulting Group report
has picked up on is that potential conflict or unfair advantage that they will have.
Senator NASH—The unfair advantage that will come from the information.
Mr Grebe—So when we talk about this data collection it is not to then do a report a year
later to say, ‘This is what happened’; it is to ensure that they are not able to cherry pick or
have an unfair advantage of knowledge to commercialise.
Senator NASH—You mentioned the receival sites in your opening remarks, too. Just
backtracking, I have the same concerns you do about access to the port facilities. I think that
absolutely would have to be nailed down. I asked the EWC yesterday and also GrainCorp—so
that can’t be named!—what appropriate access is. Currently, looking at the legislation at the
moment, the Export Wheat Commission had no idea. This, to me, is absolutely vitally
important. What is appropriate access at the port facilities for other traders so that this
competition that everyone says will work—which I sincerely doubt—has an ability to actually
work?
Mr Hadler—We cover that in some detail in our submission. I suggest that Mr Bartos
quickly answer that for you. He has done the work.
Senator NASH—I am happy to leave it to the submission if you just want to do that.
Mr Bartos—That is an excellent question because, although there is in general a consensus
that access is needed, what exactly does that mean in practice? That is the heart of your
question. Our report goes into that in quite some depth. It is probably different at different
parts of the supply chain, whether it is at up-country receival sites, the transport or the port
facilities. With the ports, there are actually access regimes in place at the moment. Taking for
example the Western Australian one, which is legislated in the west, one of the interesting
things about that is that the terms and conditions of access are not actually stated in the
legislation. It has not arisen as a policy issue to date, I suppose because AWB has been the
exporter. It will arise in the new market.



What kinds of access regime would you put in place? We go through that in our report, and
we suggest that some of the models would include basing it on the voluntary undertakings
that have been put in place in Victoria and South Australia in particular for the handlers, the
South Australian system being a good model. Voluntary undertakings under the Trade
Practices Act are, in a sense, a slightly weak instrument, but they are enforceable in the
courts—they are disclosable—so that provides a basis. But the other thing that is really
crucial is not simply the physical access but also this whole question of information that is
held, particularly at ports, in relation to arrivals and departures of ships and their location with
respect to the grain. That information is absolutely critical, and we are suggesting in this
report that the solution there is a much better regime of transparency about that information,
including regular publication, at least weekly, of some of that key information. There is quite
a considerable section in this report, to which I would refer you, to explain that in more depth.
Senator NASH—Chair, I do have a lot more questions, and I will come back to them if
there is more time at the end, but I am happy just to ask one more quickly now. In terms of
access, there is all the focus on the port facility, but I also have concerns about access at the
receival sites and how that is going to operate, which I think is going to be a key part of all of
it. Can you run me through the numbers of receival sites again.
Mr Hadler—There are more than 600 receival sites up country that are owned and
controlled by the three bulk-handling companies, and 22 by AWB.
Senator NASH—What are the current arrangements at, say, a GrainCorp receival site for
other traders to come in and use that site? What are the current access arrangements?
Mr Hadler—Under the current access arrangements, AWB posts a price at the receival site
and growers have the opportunity to deliver to AWB at that receival site or to deliver to the
bulk handler.
Senator NASH—Is that by agreement, though? And does that work in reverse for the
AWB site?
Mr Hadler—Yes; and, yes, it is by agreement. But I would have to say that the agreements
have not worked very well under the current regime.
Senator NASH—What concerns me is that there is nothing I can see in the legislation to
provide for any kind of guarantee for these other traders—who are going to provide the
competition—of ongoing access to all of those receival sites that are currently held by the
grain handlers.
Mr Hadler—That is correct. One of the key principles of this bill is to provide that freer
access, and there is probably a need to look at that in more detail.
Senator NASH—But am I right that in the current legislation there is no provision at all
for any kind of access guarantee at the receival sites?
Mr Hadler—That is correct.
Senator NASH—Thanks, Chair.
CHAIR—Senator Nash, once again you have got me—I fell for it again: one became five.
Senator Siewert.



Senator SIEWERT—Senator Nash has just covered part of what I want to cover about the
receival points. We have not got your submission yet, so if you have covered this in your
submission I apologise. In your report, Mr Bartos, you make some important points about
infrastructure. Do you think the legislation should be amended to cover the receival points?
Mr Hadler—Yes, we do.
Senator SIEWERT—So, requirements for access provisions at receival points. What
about transport infrastructure? You go into that as well; I think it is conclusion 2 that talks
about infrastructure. My understanding from what you say in your report is that you do not
class that as being as important as some of the other infrastructure. Is that correct?
Mr Bartos—Only in the sense that the rail transport has a substitute in road. It is not a
perfect substitute. In economic terms, there will be an element of monopoly rent that control
of the rail infrastructure will allow people to extract, up to a limit, at which point it is
economic for road to substitute. So there is at least that possibility of substitution. But there
are concerns and we have raised them in our report. For example, in Western Australia, there
are reports we received during the course of our project that CBH might have an exclusive rail
haulage agreement and also own the ports and also own the up-country receival sites. That
means it would control every aspect of the supply chain, which might give rise to concerns
about competition in the west.
Senator SIEWERT—So you have said, yes, you think the legislation should be amended
for receival points. Should there be something in the legislation around transport
infrastructure?
Mr Hadler—Yes. We make a specific recommendation in our submission, based on the
work done by the Allen Consulting Group, that the legislation should look at prohibiting
vertical integration right throughout the storage and handling supply chain. That is clearly an
issue that the ACCC will need to keep a close look at.
Senator O’BRIEN—If I can jump in there, how do you use this legislation to regulate the
transport sector when the transport sector is not owned by the infrastructure owner? That is a
pretty basic question. The legislation is only going to regulate those who seek accreditation.
The operators of the railways will not be doing that.
Mr Hadler—That is a good point. It is only in consideration where an accredited company
under this legislation seeks to have an exclusive rail agreement that provides vertical
monopoly dominance. If this legislation cannot cover it then I think the ACCC clearly needs
to have a greater look at it.
Senator O’BRIEN—Under current legislation?
Mr Hadler—Yes.
Senator ADAMS—I would like to make a comment on that. I think when we go to
Western Australia the committee will be hearing from CBH about their new solution called
‘grain express’. Certainly, the paper I have here in front of me does spell out a lot of the
concerns that people have. I will not pre-empt what they are going to say in Western Australia,
but they have certainly come up with some very good ideas as to how they can be fair with
access at receival sites and at the ports.



Mr Hadler—AWB has not seen full detail of the proposed grain express model and how it
might work. We are only responding here to industry information. If greater information
comes out that dispels concerns about those issues then that would be an important
development.
Senator SIEWERT—I want to touch on a couple of the issues that you have mentioned. I
am sorry we have not got the submission yet. There are a number of points that you have
mentioned, and I want to take them further because we are trying to see whether this
legislation is adequate or not. You talk about transparency and publication of information; that
comes up in a number of submissions and you have touched on it again. Do you believe that
the legislation goes far enough, or are there changes to the legislation that are needed to deal
with the issues that you have raised about transparency and access to information?
Mr Hadler—As a whole, I think the legislation is necessary and appropriate, but it may
not be sufficient in some areas. Our submission identifies some potential gaps, particularly
around bulk-handling information, information at port and the industry good services. There
are some areas that are not sufficiently covered at the moment.
Senator SIEWERT—Our job is to look at the legislation to see whether it is adequate or
whether there are gaps or unintended consequences. What you are saying, if I understand
correctly, is that you do think there are amendments that are needed to the legislation to deal
with this issue around information accessibility.
Mr Hadler—Correct.
Senator SIEWERT—You spoke about the ABS and the WEA having ultimate
responsibility for provision of information. You are saying that ABS should be the collection
point, whereas the WEA should be the body responsible for ensuring that the information is
accessible and transparent.
Mr Grebe—And timely.
Senator SIEWERT—Yes, and timely. That is a good point—it is no good getting the
information six or 12 months down the track.
Mr Hadler—That is correct.
Mr Grebe—In our submission we recommend that this information be posted daily for
receival or weekly for shipping stem. But it has to be in such a way that you can make a
commercial decision around it—proactively rather than after.
Mr Hadler—We apologise for the late delivery of the submission. As you can see it is
quite comprehensive, and it did take some time to pull the detailed analysis together. We
apologise that you could not get it before this morning. We would be pleased to answer any
other questions at a later date.
CHAIR—We are scheduled to be back in Canberra on 22 April. Senators may wish to read
the submission and we may call you back on that day.
Mr Hadler—We would be pleased to do that.
Senator SIEWERT—It would be an excellent idea to have you back on the 22nd. There is
a lot of detail here—you have supplied substantive information, which I think is very useful.



The growers put on notice to us a series of questions yesterday, and I would like to be cheeky
enough to hand them over to you. Rather than taking up time—I know we have only 10
minutes left—I am wondering whether you could look at, in particular, the Queensland
growers’ questions. They actually gave us a list of unanswered questions on notice, and now I
want to chuck them back to you and get your opinion as well. Could you look at those and
give us some feedback? That would be very much appreciated.
Mr Hadler—We would be pleased to do that.
Senator McGAURAN—From yesterday’s hearings and from your own submission, it is
quite clear that this legislation is going to spin on access—its success or failure will depend
on access to the ports for open and fair competition for the benefit of the growers. We all
agree on that. Is it possible for investment at the ports for storage? Is there room for new
players? Is there anything in your own business plans for that?
Mr Hadler—I think the reality is that we have a surplus of storage and handling
infrastructure. What we really need is better access to the existing infrastructure. There is a lot
of capital tied up in the current industry—probably too much given the structural changes in
the industry. And the existing storage is not in the right place. There might be some scope for
new investment in new infrastructure in some areas, but in overall terms we have more than
sufficient infrastructure and the key issue is fair access to that infrastructure.
Senator McGAURAN—So AWB does not have its own plans to invest in infrastructure?
Mr Hadler—Not at this stage. If we were precluded from fair access then a contingency
plan would be to look at establishing our own port infrastructure if that was allowed by state
governments. This is an important point for the committee to understand: dual infrastructure
is currently prohibited in practice if not under law at a state government level.
Senator McGAURAN—What is?
Mr Hadler—Dual port infrastructure.
Senator McGAURAN—That sounds anticompetitive.
Mr Hadler—In practice they are also discouraging road competition to rail, either through
policy or through legislation.
Senator McGAURAN—What does the competition policy say about that? That is
something we have not drilled down to, obviously.
Mr Hadler—It is an issue that I think the committee should look at.
Senator McGAURAN—Indeed. Nevertheless, in this transitional period your own
company has made significant steps to prepare for the new competitive world. If this new
legislation were stopped in the Senate, would you be capable of reverting to being the sole
exporter, creating a pool?
Mr Hadler—I think the genie is out of the bottle; I do not think we can put it back in.
Senator McGAURAN—You are not capable, or you do not want to?
Mr Hadler—I think it is not commercially feasible for AWB to go back to the old
arrangements. Let us remember the default set of conditions is a national pool—not a single



desk—with bulk permits and deregulated bags and containers. It would not be commercially
feasible to manage under those arrangements.
Mr Grebe—What you are reverting to, Senator, is the 2007 Wheat Marketing Amendment
Bill, where the veto will transfer from the minister to the regulator, but there have not been
additional legislative measures introduced that would spell out how the regulator would apply
that veto, and that is the missing part of the picture at the moment.
Senator ADAMS—I would like to pick up on that. You spoke about the default position. It
is very important; I do not think a lot of people understand what happens on 30 June if this
legislation does not go through. Would you like to expand a little on what you said before?
Mr Grebe—The original 2006 Wheat Marketing Amendment Bill and then the 2007
Wheat Marketing Amendment Bill temporarily transferred the bulk of veto powers to the
minister with a sunset clause. Subsequent amendments moved to the 2007 amendment bill
mean that the veto cannot return to AWB—it either goes to a new entity, which was
foreshadowed by the previous government, or it returns to the regulator, to the authority. What
was always intended under the previous government’s policy is that there would be additional
legislation required in 2008 to give effect to those policy directions, and part of that would
then have been the conditions under which the regulator would have approved permits. At the
time it was stipulated that they would be things like the lockout of a market and the
development of a new market. That additional certainty, which we state is missing at the
moment, was always going to be required if we were to default back. It is an incomplete set of
arrangements.
Mr Hadler—It is also important to understand that under that default scenario there would
be no probity or governance requirements for the issuing of permits. It would be a very
incomplete set of arrangements.
Senator ADAMS—Thank you. You spoke about the risk of the wheat industry forming an
ASIC group. Would you like to expand on that?
Mr Hadler—As I said before, the current bill provides a lot of scope for the current
regulator, the Export Wheat Commission, to develop the regulations and the processes for
accreditation and revocation. On the basis of a presentation to the grains industry last week by
the EWC, there is potential for a heavy handed approach to regulation to be developed by the
regulator, which would be inconsistent with the light touch intent of the legislation.
Senator ADAMS—Something that arose yesterday and seems to be a big problem is the
fact that, with a deregulated market and accredited marketers, Australian wheat may be being
bartered by two companies dealing with the same buyer and pushing the price down. Could
you give us some examples of that?
Mr Hadler—That can happen under the current arrangements. With the regulation of bags
and containers, and bulk export permits, wheat can go out in competition with wheat
marketed by the pool. I think it is a bit of a furphy—the potential is there for it to already
happen. At the end of the day good quality wheat and the best commercial offer for growers
will be the order of the day.



Senator ADAMS—Are you putting forward a submission to the Wheat Industry Expert
Group?
Mr Hadler—Yes, we have submitted to the expert panel the Allen Consulting Group report
on the industry good services. We know that it is not a specific issue for this committee, but
we have attached that report for the consideration of this committee as well, because of the
overlap. I will ask Mr Bartos to briefly touch base on his report on that issue, if we have time.
CHAIR—We have two minutes left, Mr Bartos.
Mr Bartos—In that case I will just note that we cover all of the industry good services that
are currently provided and look at the rationale for each—whether there is a market failure or
not for each of those—and analyse them in depth. I refer you to that, and I would be happy if
the committee secretariat wants to ask questions about it offline.
Mr Grebe—One of the other things the report touches on is future industry good services,
and that is where we touch on information access. Some of these were applicable under the
old arrangements, but under new arrangements we will need to look at other things.
Senator FISHER—Mr Hadler, you have expressed your view that the accreditation and
revocation requirements of the bill are intended to be a light touch to replicate the South
Australian barley model but in effect they can be interpreted and in your view are likely to be
a more heavy touch. Mr Woods gave evidence yesterday—we do not have the Hansard, so I
may not be quoting him correctly—and my notes say that he said the accreditation and
reporting requirements body will not be monitoring what individual exporters will be doing,
like AWB currently does. That is somewhat at odds with your prediction. Do you have a
comment on that?
Mr Hadler—I might ask Mr Grebe to comment on the briefing provided by EWC last
week. He attended that briefing, so he will be able to give you a better idea of the potential
risk that we are talking about.
Mr Grebe—One of the risks here is that in South Australia there is a very general test that
is applied quite subjectively by ESCOSA about whether you are a fit and proper person. One
of the risks is that, the more specifics that are included in the legislation, the more compliance
and technical breaches will occur. What is unclear at the moment in this legislation is which
way it wants to go. I think to be a light-touch regulatory approach it would potentially need to
just rely on broader principles. I think that at the moment there is uncertainty within the
industry and within the regulator in particular about what exactly their role is, particularly
around things like the monitoring and investigative role—that is, whether they are simply
there to give initial approval and then, beyond that, it is up to each individual company as to
how they then conduct their business. Certainly at the moment it is not clear whether they
have that ongoing investigative or monitoring role or it is simply an initial approval process.
Senator FISHER—Thank you, Messrs Hadler and Grebe.
CHAIR—Mr Hadler, Mr Grebe and Mr Bartos: thank you very much.
Proceedings suspended from 10.01 am to 10.14 am



MORTIMER, Mr David Kenneth, Executive Manager, Food and Agriculture Division,
Department of Agriculture, Fisheries and Forestry
PHILLIPS, Mr Russell, General Manager, Wheat, Sugar and Crops Branch,
Department of Agriculture, Fisheries and Forestry
SHEALES, Dr Terence Charles, Chief Commodity Analyst and Manager, Agriculture
Branch, Australian Bureau of Agricultural and Resource Economics, Department of
Agriculture, Fisheries and Forestry
CROSBY, Mr John Roger, Chairman, Wheat Industry Expert Group
CHAIR—I now welcome officers of the Department of Agriculture, Fisheries and Forestry
and the representative of the Wheat Industry Expert Group. I remind senators that the Senate
has resolved that an officer of a department of the Commonwealth or of a state shall not be
asked to give opinions on matters of policy and shall be given a reasonable opportunity to
refer questions asked of the officer to superior officers or to a minister. This resolution
prohibits only questions asking for opinions on matters of policy and does not preclude
questions asking for explanations of policies or factual questions about when and how
policies were adopted. Officers of the department are also reminded that any claim that it
would be contrary to the public interest to answer a question must be made by a minister and
should be accompanied by a statement setting out the basis for the claim. Does anyone wish
to make a brief opening statement before we go to questions?
Mr Phillips—During the recent election campaign the government detailed its wheat-
marketing policy in the document Australian wheat export marketing and summarised it again
in the document Labor’s plan for primary industries. I have copies here if you would like
them. The main objectives of the policy as detailed in Australian wheat export marketing,
page 8, include greater selling options for growers, more cost efficient marketing services,
additional transparency of price and cost information, long-term transition of industry
development functions to industry control, reduced risk compared with a single buyer, and the
opening up of new markets for the sale of Australian wheat. The policy sets out the main
components for implementing these new arrangements, such as the accreditation scheme.
The department is now implementing the government’s policy. This includes preparing the
necessary legislation, providing advice to the government as needed, liaising with
stakeholders on the development and operation of the new arrangements and managing the
machinery-of-government issues associated with all legislation. We are managing the process
to meet a 1 July 2008 commencement date for the new arrangements. The key steps in that
process from here on are the public comment period on the exposure draft of the legislation,
and that period closes on 3 April; this Senate inquiry; finalisation of the report by the industry
expert group, chaired by Mr Crosby, on the delivery of industry development functions under
the new arrangements; consultation with industry over details of the accreditation scheme,
which is to be a legislative instrument under the proposed act; selection of members for
appointment to the new regulator, Wheat Exports Australia; refinement of the draft legislation
in the light of comments received on the exposure drafts; and the introduction of the bills into
parliament during the winter sitting period.



The draft bills, which are available on the department’s website, specify the key elements
of the proposed arrangements and include the creation and composition of the new regulator,
Wheat Exports Australia; the powers for Wheat Exports Australia to make the accreditation
scheme; the power for Wheat Exports Australia to grant, suspend and revoke an accreditation;
the power for Wheat Exports Australia to place conditions on an accreditation, including some
mandatory requirements; the power for Wheat Exports Australia to audit an accredited
exporter at any time; the power for Wheat Exports Australia to demand information from
accredited exporters; the exemptions from requiring accreditation for the first three months of
the new arrangements—that is, up until the end of September this year; the power for the
minister to direct Wheat Exports Australia to undertake an investigation into a matter that he
or she considers necessary; the requirement for port terminal operators to provide access to
their port terminal facilities if they wish to become an accredited exporter; the requirement for
Wheat Exports Australia to report to growers and the minister on the operation of the scheme;
and the penalties that will apply for breaching the legislation. That concludes our opening
statement.
CHAIR—Thank you, Mr Phillips.
Senator ADAMS—Firstly, there has been quite a lot of comment as we go through on
access, of which you would probably be aware. It is not so much the access to ports as the
access to inland terminals and the problems associated with that—that is, they are owned by
the three major players rather than by other private organisations. Could you comment on
that? I have to be careful, because we cannot ask policy questions, but, as far as the
department and the legislation go, it really does not spell out this. Would anyone be able to
comment on that?
Mr Phillips—What the legislation does is reflect an access requirement for where there are
perceived to be bottlenecks in infrastructure. In the case of the up-country storage and also the
up-country transport, they were not seen as being the same bottlenecks in the system that may
be able to lead to a restriction of competition. As was pointed out by Mr Bartos, on the
transport side of things, rail is substitutable for road and vice versa—maybe not perfectly, but
they are substitutes. Up-country storage does not have the same barriers to entry as port
terminal facilities. For example, there is adequate land. The cost to build up-country storage
facilities is not as great as what it is at, say, the port terminals. The legislation focuses on
where there is the perception that there may be a bottleneck that could potentially restrict
competition.
Senator ADAMS—Another issue that has arisen is regarding accreditation and that it must
be for a company. A number of private growers have spoken to me about this and are
wondering just how they can cope with that and what their situation would be. Could you
explain that in more detail?
Mr Phillips—At the moment, it has been drafted so that the accreditation process will be
applicable to companies that are subject to Australian law. That has been done for two major
reasons. The first is to ensure the enforceability of the act by making sure that whoever has
accreditation has a presence in Australia and is subject to Australian law. The second is that,
in drafting the legislation, we were relying on certain constitutional powers for the right of the
Commonwealth government to make laws in this area. It has been drafted around two arms:



the export powers arm and the corporations powers arm. Some of the other legal entities in
Australia, such as cooperatives, are not actually under Commonwealth Corporations Law;
they are under state laws. To give another constitutional base to the legislation, the use of
corporations was included. Whilst there are some cooperatives, such as CBH, many of them
also have corporations as subsidiaries. For example, CBH applied for its permits to export
wheat to Indonesia in the name of AgraCorp, one of its corporations.
Senator McGAURAN—Will that exclude applications for accreditation from formations
other than companies?
Mr Phillips—At the moment, the way it is drafted, it is companies. We have received
submissions already relating to the possibility of allowing others to become accredited, and
we are examining that possibility.
Senator ADAMS—On accreditation, we have had comments today regarding the South
Australian accreditation system, which some organisations considered to be adequate—they
think the accreditation system described in this legislation is possibly a little cumbersome—
and the fact that a number of the companies that are already accredited in South Australia will
be possible applicants for accreditation under the new legislation. Could you comment on
that?
Mr Phillips—The South Australian system was set up with a very clear statement that it
was seen as a stepping stone to full deregulation of the barley industry. It is being
administered by the Essential Services Commission of South Australia with that in mind. The
arrangements we have here are not seen as that. But, if you like, the essential basis of the test
in both instances is similar—that is, ‘Is the person fit and proper to be accredited?’ Our
legislation spells out a few more of the things that must be included in that assessment
process. There is scope in the South Australian legislation for it to be as fulsome—if not more
fulsome—if they chose to administer their system in that way. Our draft legislation has the
same fit-and-proper-person test and spells out in more detail some of the things that must be
taken into account by the regulator.
Senator ADAMS—If this legislation is not passed by 30 June, what will the process will
be from then on?
Mr Phillips—If nothing has changed between now and the end of June, then what happens
on 1 July is that the minister’s current power to grant or refuse applications for export permits
will lapse and the Export Wheat Commission will become the sole determinant of whether or
not an export permit should be issued. The test it will have to apply is the one in the existing
act, which is whether or not the application for a bulk permit will complement the objectives
of AWBI in running the national pools or whether it develops niche markets.
Senator ADAMS—After 30 June, would AWBI, as a company, be forced to run a national
pool?
Mr Phillips—The legislation will still require them to run a pool. The way the current
legislation is drafted is that they have that obligation until their exemption from acquiring an
export approval from the Export Wheat Commission occurs. There is one section of the act
that basically says it is illegal to export wheat without the approval of the Export Wheat
Commission. That prohibition does not apply to AWB. That is one part of the act. In another



part it says that AWBI is required to operate national pools for as long as it holds that
exemption referred to earlier in the act. So, yes, it would still be required to operate a national
pool.
CHAIR—Mr Crosby, would you like to make a brief opening statement as Chair of the
Wheat Industry Expert Group?
Mr Crosby—The Wheat Industry Expert Group was set up about six to eight weeks ago in
order to deal with those functions which used to be called the industry good functions, which
were carried out essentially by AWB on behalf of AWBI as part of their pool responsibilities.
There are 11 of those functions that have been identified by AWB and by other people as
being the industry good or industry development functions. Our committee has recently
released a paper which covers what we think should happen to those 11 functions and has
made some other comments as well. That is now out for discussion.
The committee has decided that items 1, 6, 7, 8, 9, 10 and 11—this is the order they are in
in the paper—are essentially functions which the commercial operators of the industry and the
various other industry organisations that currently exist will take up or not take up on the
basis of whether they believe they are important. The ones that we feel need to be directed are
research and development—we have endorsed GRDC as a competent and well-organised part
of the wheat industry that needs to remain in that position, and we believe its current funding,
which is part government and part industry, is a logical way to go.
Point 2 is about variety classification. It is very important for the whole wheat industry that
we understand which varieties can be sold as what. AWB has been the secretary and the
organiser of that group, and we are suggesting that GRDC should essentially just transplant
itself into what AWB did in that committee and make sure that that committee is
representative of the industry so that we get a sensible and logical declaration about new
varieties coming into the system as to what they should be allowed to be classified as.
The fourth one is about receival standards. We have suggested that NACMA are the logical
body, in the grains industry generally, to set standard parameters for delivery of grain at silo
and standard terminology about those grades and those receivals of grain. They do that
already in all of the other grains except wheat, and in wheat AWB has done that. We are
suggesting that NACMA are not only well placed but already experienced in how to have
standard contracts and how to describe grades in a standard way. So we are suggesting that
they should take that over.
The fifth one—which we are still seeking advice on—is information. One of the very
important planks of a heavily deregulated industry, as compared with what we have had in the
past, is that it is very important that the major industry players and the minor industry
players—and I mean that in terms of size, not importance—have a reasonably even base of
information upon which they can make their decisions about what price they should sell their
grain at or buy their grain at, whether there is enough to carry through to the next harvest or
whether there is going to be a shortfall, and all those sorts of issues which, in the end,
determine the price. We are suggesting that there is an important role in that for ABS, as the
independent collector of information, to be able to publish figures on a regular basis—we are
suggesting monthly. That would spread information across the whole industry on how much



grain is available in the system—not who owns it but how much is there—and therefore
people could make their own estimates about whether that is going to make up the next
harvest or not. So we are suggesting that that sort of base level of information needs to be
made available to everybody and that ABS is the logical body to collect it because that is its
charter and it has also got the constitutional capacity to ask people and insist that people give
it information.
We recognise people like ABARE as having a role in dissemination of a different type of
information, particularly making sure that things like the USDA crop reports are available,
and also the value-added services which they provide now in terms of information. On top of
that, again, we have the private providers—the people who actually charge money for their
weekly or monthly newsletters and give advice on what growers should do. One of the very
important factors which have occurred in that process in recent times is feedback, particularly
from Western Australia but also from South Australia, that a very large percentage of growers
now use a professional adviser to help them with their marketing decisions. That, in a
nutshell, is where we have got to. Submissions have to be in by the 27th, which is today, and
we have to report back to the minister by, I think, 24 April.
CHAIR—If the information is available monthly—which is the expert group’s desire—
how will that be forwarded on to growers?
Mr Crosby—We have not directly canvassed that issue, except that the current ABS
report—which is only done twice a year—is available on their website. We would suggest that
there is an information process that has to go on, alongside these sorts of changes that we are
talking about, where organisations such as farmer organisations, AWB, the grain-handling
authorities and all of the grain marketers need to make sure that that sort of information is
available. Either it should be on their websites or they should alert growers that that sort of
information is available.
CHAIR—Currently that information is available, but it is published biannually?
Mr Crosby—They do two surveys a year. Yes, it is on their website. They do one in the
early part of harvest, in about November, and they do another one at the completion of harvest
in about February-March which is available in early April. That is by request, essentially.
They have been requested to do that by various parties in the feed-grain industry. What we are
suggesting is that that needs to be monthly.
Senator HEFFERNAN—But they are not obliged to tell, are they?
Mr Crosby—Do you mean the ABS or the grain-handling authorities?
Senator HEFFERNAN—Is there a legal obligation for the people who warehouse grain to
say what they have in store?
Mr Crosby—My understanding from our discussions with ABS is that if ABS asks then
they have to deliver.
Senator NASH—What happens if they do not?
Senator HEFFERNAN—Could we ask ABS?
Mr Mortimer—We can take that on notice. I think that what Mr Crosby says is—



Senator HEFFERNAN—I think it is a furphy if you think people are going to breach their
own commercial-in-confidence, when they are competing in the one marketplace, as to what
they have got and what blends can come out of it—the blending of wheat is important. That is
all part of getting a quid. I had better be a bit careful of what I say, but I do not think that is a
reality. You need a reality check there.
Mr Crosby—Senator Heffernan, the point is: what level of information do we think it is
important to the whole industry to know? We are not suggesting, for instance, that the grade-
by-grade break-up of every country silo is known. What we are suggesting is that the
marketplace needs to know, within its draw area, the general quantity of wheat that is
available and the general product that is available for it to purchase.
Senator HEFFERNAN—But you would agree that it is in the interests of the marketeers
rather than the people who are marketed—in the sellers’ rather than the buyers’ interests—to
have some commercial-in-confidence advantage over their competitors?
Mr Crosby—There is absolutely no question about that—absolutely no question—
Senator HEFFERNAN—And that would be a reality.
Mr Crosby—and that is what we are suggesting is the reason why there needs to be a base
level of information available to everybody. It is also the reason why we have endorsed a
four-point code of practice which has been put together by the major grain handlers, AWB and
NACMA. That is in our submission, under point 2. Mr Chairman, do you want me to read the
four points out?
CHAIR—We have a copy of your discussion paper.
Mr Crosby—Under point 2, you will see four points. Those four points, I am informed by
a large number of people that are involved with those organisations, have been signed off at
the most senior levels.
CHAIR—I would say for simplicity, Mr Crosby, if you have them in front of you, please
go through them. We have plenty of time.
Mr Crosby—Okay. The first point is:
• prominent listing and use of standardised language and means of expressions for all fees, charges
and statutory deductions applicable to all types of transactions in material promoting these products
to growers …
Senator HEFFERNAN—Could you point to where that is in your paper?
Mr Crosby—It is on page 7. The second and third points are:
• posting on silo boards and on the web, the transparent net return figures for all types of transactions
to allow growers to make better informed market decisions;
• expression of base marketing costs charged against all types of transactions as either a flat figure
per tonne or a percentage of the gross value …
And the fourth one is:
• reinforcement of current equitable access undertakings for bulk handling and storage facilities and
ports, consistent with section 45 of the Trade Practices Act—
which is the point that Senator Adams was talking about earlier, in relation to availability of
port space for non grain handlers. Those four points have been agreed to by all of the major



grain handlers and AWB, as a grain handler and marketer, and also NACMA, as the
representative organisation of all buyers.
Senator HEFFERNAN—Can I go back to point 5. By the way, who authored this?
Mr Crosby—The committee—
Senator HEFFERNAN—No, who actually wrote the report for you—the department?
Mr Crosby—Russell Phillips and his team.
Senator HEFFERNAN—The department wrote the report and you signed off on it?
Mr Crosby—That is right.
Senator HEFFERNAN—How did you arrive at this? Did you have a committee meeting
and say, ‘We want this, this and this,’ or did they put it forward as a recommended draft
report?
Mr Crosby—No—sorry, the first of your two options. We have had now two face-to-face
meetings, and we have one coming up in a couple of days. We have had a phone hook-up
essentially every week until two weeks ago. It was not a blank-paper exercise.
Senator HEFFERNAN—Yes, I understand that.
Mr Crosby—We had as a starting point a paper from AWB, a paper from the Grains Policy
Institute and a paper from NACMA, all with opinions about what should happen to the 11
points. The 11 points, incidentally, are the 11 points which the Wheat Board designated. We
looked at two or three other points—
Senator HEFFERNAN—You have done well to get it onto one bit of paper!
Mr Crosby—We do have a very good committee. They are very straightforward.
Senator HEFFERNAN—Who is on your committee, by the way, just out of interest?
Mr Crosby—You are now going to test my memory, without having them in front of me.
Senator HEFFERNAN—You have had two meetings.
Mr Crosby—Yes. There is Geoff Nalder—they are all Geoffs!—from VFF; Gail Dowie,
from Queensland; David Thomas, from South Australia, who is also on the Barley Australia
group; Graham Shields, from Western Australia, a large wheat grower and also a large
marketer of grain from Western Australia; Dan Mangelsdorf, head of Australian grains—
Senator HEFFERNAN—I know Dan.
Mr Crosby—and me.
Senator HEFFERNAN—When were you presented with this draft report? We got it
yesterday.
Mr Crosby—We signed off on it at our last meeting and released it on the website on the
13th.
Senator HEFFERNAN—To go to point 5, on the production, forecast and actual, for
ABARE: under the new arrangements—this may even be a question for someone else—do
you think it will be possible to collect that information reliably?



Mr Crosby—Perhaps in the way it is worded it sounds very complex, but in fact the world
accepts the USDA crop reports as being extremely accurate, and that is the base upon which
that information is based.
Senator HEFFERNAN—Okay, but I do not think that in practice that part of it is going to
work. What influences forecasts more these days? With the competing aggressive public
companies that will be in the wheat market—and AWB is a classic example of that; as I said
earlier, I thought some of them should get locked up—do you think physical or financial will
have the most influence on the pricing decision at the weighbridge? Do you think—I do—that
financial instruments have an increasing role to play? Gold, silver, wheat—it is just another
tradeable commodity, and there is a lot of speculation in the market. How much is that
interfering with the wellbeing of farmers?
Mr Crosby—I think if you looked at the last couple of weeks you would suggest that the
influence of financial traders has had an amazing effect on commodity markets of all types.
Senator HEFFERNAN—So where is there much danger from the financial markets
because of the way they have now built the market? The fertiliser thing is a really good
example. I am interested, by the way, if Mr Brian Packer, who was here yesterday, is
listening—I will be giving him a ring. We have got an inquiry into fertiliser, because
obviously there is some cartel behaviour in fertiliser and chemical. But do you think that one
of the greater concerns for Australia’s farmers is not only their inputs—and the higher their
inputs, the bigger the risk? I have seen the bullshit Incitec Pivot have put out telling the
farmers they can afford to pay more for the super because they are getting more for the wheat.
But the financial risk is higher, the higher your inputs, if you have a failure—you would agree
with that?
Mr Crosby—It is self-evident that if the cost of production per hectare goes up then the
risk of failure gets higher.
Senator HEFFERNAN—So how much greater risk under the present proposed legislated
authorities will be playing into the hands of the commodity traders rather than the physical
marketers?
Mr Crosby—Perhaps I could seek a clarification from Senator Sterle. My job in this—
Senator HEFFERNAN—I am not necessarily directing it to you; I can direct it to
whoever would like to step up to the plate.
Mr Crosby—The point I would like to make is this: my job in this is as chairman of a
group which is looking after a specific part of the non-legislative part of the industry. I am a
farmer with 35 years knowledge and interest in the industry, as Senator Heffernan is—
Senator HEFFERNAN—It looks a bit like that.
Mr Crosby—and I am in the difficult position where that is not something that we covered
here.
CHAIR—Mr Crosby, I think very clearly your expertise is sought as to the bill that is in
front of us.
Mr Crosby—Okay.



CHAIR—I know Senator Heffernan has a passion for all things farming, as most of us do.
Senator HEFFERNAN—So who is going to answer the question? I have just had an
interesting discussion with some of the people downstairs on wool. Australia’s wheat growers
are passionately concerned about where they are being taken—and a lot of blokes who grow
200 or 300 acres of wheat haven’t got time to be mucking around in financial markets and
going to meetings like this. How much extra influence from speculation in commodity trading
is their future going to be dependent on?
Mr Mortimer—I think Dr Sheales from ABARE might be able to give some comment on
that question.
Dr Sheales—I cannot answer all your questions, obviously, but there are a couple of
things. First of all, on this point 5 that you raised, on the transparency issue: it is absolutely
essential to the well functioning of the market that it is transparent, that people do have an
idea of how much grain is around. We do not need to know how much each individual trader
has, but we need to know how much is in the country. We went through a lot of this
discussion in the last two years with drought and worries about supply.
Senator HEFFERNAN—Yes, I appreciate that.
Dr Sheales—What ABS can do and have done is aggregate. They collect data from a range
of participants and then aggregate it up so it cannot be identified with a single player. So, for
example, if there are two players in one state, they will not even provide the aggregated data
because, if you provide that, clearly both players know how much the other has got. So there
is that sort of proviso on what they do. The other thing is that my understanding—and this is
just my understanding—is that, while they have compulsion over traders to provide
information, I think they are fairly reluctant to do that. They would rather it be a goodwill
exercise, for obvious reasons.
Regarding the crop forecasting, a whole range of organisations put out crop forecasts.
ABARE is obviously one, but some private sector organisations put out forecasts. State
departments of agriculture put out forecasts on crops in their own states, and the USDA also
puts out crop forecasts for Australian crops. So there is a range of information out there that is
continually being fed out. In our case we typically put it out once a quarter, but if things are
difficult, as they were in the last two years, we will put it out more often to try to inform
participants in the market about what we at least think is happening. So I am of the view that
transparency is an important issue that has to be dealt with.
Senator HEFFERNAN—More driven by good will than—
Dr Sheales—It is not up to me to say how you drive that, but it is in the interests of an
efficiently functioning market, which everyone—
Senator HEFFERNAN—We are all likeable rogues in the market!
CHAIR—I would ask Mr Crosby as the expert to quantify that statement!
Mr Crosby—It is a very important issue that is being raised. But there is one point: I have
now spent a significant amount of time speaking to all but one of the major grain handlers
about market information because of their sensitivity to dispersing information that they
might see as an advantage to them commercially. They have come out with that four-point



statement because they have, I think, in all fairness to them, recognised that, whilst they do
have a significant information advantage over potentially a number of other players in the
marketplace, they are also themselves caught by the bits of information they do not know. I
hope I am not off the mark here, but one of the points made to me by the chief executive of
GrainCorp was that they only hold 55 per cent of the storage capacity in the eastern states.
The rest is held by other people. So their greatest problem is in understanding what is in the
other 45 per cent.
Senator HEFFERNAN—That is right, and that is why I think this four-point statement is
just a meaningless motherhood statement. The first point is: ‘Prominent listing and use of
standardised language’—I mean, der! I want to ask Dr Sheales to continue on the line of
market influence, because a lot of Australia’s farmers are seriously and passionately worried
about their future. A series of things are bothering them—and certainly these changes and the
voyage, as they see it, into the unknown. A lot of people, like me, are not up to date with the
latest global technology and into financial instruments and markets. I just wonder how much
wheat growers’ destiny in terms of the commodity pricing has been taken away by the greater
speculators in the commodity traders. There is obviously money going into commodities now
from currency for a safe haven. In the future, how much do you think our future will depend
on those markets?
Dr Sheales—That in fact has always been the case. In a certain sense that has nothing to do
with whether or not we have single desk export marketing. This is the marketplace we are
dealing with and people have to manage that. I would like to go back to one small point,
which is usage of what has been AWB as the manager of the single desk. In the farm survey
that ABARE does—we do an annual survey of grain growers and all other broadacre
farmers—we took the grain growers and split them up between the smallest third, a middle
third and the biggest third. Amongst the small producers, in 2005-06, which was the last year
we had a big crop across the country—the second biggest ever—
Senator HEFFERNAN—Three years ago?
Dr Sheales—Three years ago; I will leave out the two drought years. We only know one
drought year, and I do not think that is relevant to thinking about how they might behave in a
normal situation. The second biggest crop ever was 2005-06. In New South Wales only 11 per
cent of the smallest growers sold wheat or delivered wheat to AWB. It varied a bit between
states. New South Wales was the lowest. The highest was in South Australia, where 68 per
cent delivered their wheat to AWB. The others were all in between. Across Australia as a
whole, only about 28 per cent got delivered, of the small growers. If you go to the big end of
the scheme of things, the biggest growers, about 67 per cent across Australia delivered to
AWB.
Senator HEFFERNAN—What is a small grower?
Dr Sheales—I can tell you how much on average across Australia. The smallest third
delivered 156 tonnes of wheat. The largest was about 2,350 tonnes. So there is a big
difference.
CHAIR—Dr Sheales, could you table that information for the committee?
Mr Mortimer—We are happy to get the agreement of the minister to provide that.



Dr Sheales—We can do that.
CHAIR—Take it on notice.
Mr Mortimer—Yes.
Senator HEFFERNAN—Part of the voyage into the unknown for Australia’s farmers is to
understand what has been going on. A lot of blokes simply do not have time to get their minds
around all this stuff. Senator Nash, I am sure you would agree.
Senator NASH—Exactly right.
Dr Sheales—Certainly in my mind, the bottom line is that we have had a very active
deregulated, unregulated, domestic market for some time now.
Senator HEFFERNAN—There is no question that the domestic market has worked well.
Dr Sheales—By and large, as a general comment, people are pretty familiar with operating
in that environment. It is not their entire business, but they are pretty familiar with it.
Senator HUTCHINS—Dr Sheales, you used the terminology ‘small grower’ and ‘large
grower’. Is that a statistically consistent definition? If you had used those terms five years
ago, would they be comparable now?
Dr Sheales—The average wheat-growing operation has got larger over time.
Senator HUTCHINS—So, in five years time, if someone looked at the Hansard and was
trying to compare, would they be comparing apples with apples? I just want to know whether
it is a consistent definition, that is all.
Dr Sheales—It is consistent in that we collect the information on a consistent basis.
Clearly, if you just took the total spectrum and said that one-third of the growers are the
smallest and there is another third who are the biggest and the others are in the middle, that is
a consistent approach. But bear in mind that over time wheat-growing businesses and grain-
growing business, like the rest of farming, are getting larger. You have to keep that in mind.
Senator HUTCHINS—I just want to be clear that you can actually measure that from
period to period. Whatever the consistent figure is, can you define it? That is all I am
interested in.
Dr Sheales—That is not a problem. Bear in mind that the tonnages would be different.
Senator HEFFERNAN—Yes. A big wheat crop last year might have got 2,000 tonnes, I
can tell you!
Dr Sheales—Exactly.
Senator HEFFERNAN—Then there is the manipulation of the GM argument when we
have had two or three seasonal failures in canola, compared with overseas growers. Anyhow, I
will not get into that.
Senator ADAMS—With the amount of grain delivered to AWB, you would then have to
take into account Western Australia versus the eastern states, with the eastern states having
their domestic market and Western Australia having nowhere else to go. Do you differentiate
between them?



Dr Sheales—Yes, we do. We have figured out a breakdown by state from our surveys here.
In Western Australia in 2005-06, because it was the biggest year in recent times, a bit over 70
per cent delivered to AWB.
Senator ADAMS—Where else do they go? At that time they could not go anywhere.
Dr Sheales—Clearly, it was going somewhere.
Senator ADAMS—We will not go there.
Dr Sheales—The sorts of questions we would ask would not go to the specifics of: ‘If you
did not sell to AWB, who did you sell to?’
Senator HEFFERNAN—Do you track the double accounting? For instance, two or three
years ago we had a wheat inquiry and we discovered that about a million tonnes had been
purchased in the cash market by AWB Ltd and, for whatever reason, delivered back into the
pool. Do you account for that?
Dr Sheales—No, we do not. We are dealing with growers themselves. We are asking
growers, ‘Who do you actually sell this to?’ So in that question you raised they would have
said that they had sold to AWB. What AWB did with it after that we do not know.
Senator O’BRIEN—And the 30 per cent in Western Australia might have been 20 per cent
buying at a lower price, at a cash price—but more than 80 per cent of pool estimate—and then
selling it later.
Dr Sheales—Conceivably someone could have bought it off a producer, for example, and
then resold it themselves to AWB.
Senator O’BRIEN—That is right.
Dr Sheales—That is quite possible, but we cannot track that. Once it leaves the farm there
is no way we can track that sort of thing.
Senator HEFFERNAN—I am still wondering about this. Under the deregulated market,
which obviously is ahead of us, is there a greater risk of manipulation? In the purest of
forms—some years ago before the corporatisation of AWB and all the conflicting positions
they had to deal with—is there the potential for financial instruments to interfere with the
physical market more now?
Dr Sheales—Clearly, as I referred to earlier, there are a lot of players out there affecting
quality markets.
Senator HEFFERNAN—So there are no added dangers under these deregulated markets?
Dr Sheales—No, I would not think there would be any.
Senator HEFFERNAN—Mr Crosby, in your advice to the government have you
identified a process to deal with potential facilitation in the market—that is, graft?
Mr Crosby—No.
Senator HEFFERNAN—Let us be very blatant about this. We are dealing with aggressive
public companies who will do whatever it takes—and there are some fantastic examples of
that all around the planet. In competing to avoid collusion at the bridge or monopoly—it is



either monopoly or collusion—are there any safety mechanisms you have thought through to
identify people getting marketing edges in particular markets with facilitation graft?
Mr Crosby—Most of that question is outside of what we have looked at.
Senator HEFFERNAN—Can I say that Australia’s wheat growers are very interested in
the answer.
Mr Crosby—Yes, and I am as a wheat grower too. The bit that we have looked at and the
bit that we have made recommendations on is the very significant importance of a base level
of information being available to all players in the wheat industry. The bit that we are taking
further advice on is: what is that base level that reduces the sort of thing that you are talking
about to a level that we can all tolerate? That is a very important question, and we are seeking
advice on it.
Senator HURLEY—I have a question for the department. Has there been any costing of
how much it would take to provide the information system outlined by the Wheat Industry
Expert Group?
Mr Phillips—The cost of the current information collection by ABS is known, and in the
discussion that the industry expert group had with ABS some figures were quoted. But those
would need to be extrapolated up to get a figure for the monthly collection. So there is a
figure but it is yet to be refined because it will depend on the final nature of the information
collection.
Senator HURLEY—Can you give me a ballpark type figure?
Mr Crosby—Perhaps it is better if I give the ballpark figure because then Mr Phillips does
not have to wear it. Our calculation of doing it monthly clearly depends on how wide the
survey is and how far you go down the tree. You have three major grain handlers. You have
AWB with their own storage. You have the five major international grain marketers. All of
them have some storage. Then you have the disparate market of feedlotters and all those sorts
of people. If you just look at the top 10 then it is a very cheap exercise—it is a few thousand
dollars each time you do it. If you take a much bigger survey then of course the issue is
whether you can have that as an electronic form that goes out every month that people fill out
and send back. If you can do that then I suspect we are still not talking about telephone book
size numbers. My own view, and I have taken this into account in our recommendation, is that
the type of review that would be useful to the marketplace would cost in the order of
$100,000 not $1 million.
Senator HURLEY—AWB wanted daily receival and shipping figures.
Mr Crosby—I am very sorry; they are not going to get it. My own personal view and the
view of the majority of the committee at this point in time, and what is in the paper, is that
monthly is best. The reason why I think monthly is best is that the USDA crop monthly report
is hung on by everybody around the world. To use some of the work that Senator Heffernan
was talking about, the financial market hangs on that report every month. I think in the long
run we will find that happening in Australia too. Therefore, I think monthly is the better way
to go and we should start with monthly. However, we are still seeking views from all sorts of
people on that issue.


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